Iraq launched the sale of three licenses to operate mobile phone services on Thursday in a country where millions of Iraqis rely on their cell phones after war and sanctions hit the landline network.

Iraq set a starting price of $300 million for the 15-year mobile licenses which five consortiums are bidding for at an auction in the Jordanian capital, officials said.

The fixed-line network was hit by sanctions after Iraq's invasion of Kuwait in 1990 and by bombing during the 2003 U.S.-led invasion. Fewer than 4 percent of Iraqis have landlines.

Mobile phone service is one of the few sectors thriving on Iraq's instability and crumbling infrastructure, said Dearbhla McHenry, a Boston-based Middle East analyst at Pyramid Research.

Iraq's comparatively fast-growing mobile penetration rate is explained partly by the poor quality of the fixed network, and partly by the very lack of security, which makes investing in Iraq so risky, said McHenry.

Iraqi mobile use rose to 8 million out of a population of 26 million at the end of 2006, from virtually nothing three years earlier, according to officials.

The price will start from ... $300 million plus 18 percent revenue sharing, Communications Minister Mohammed Allawi told Reuters ahead of the auction at a hotel in Amman. The auction is being attended by senior ministers, officials and parliamentarians.

The 15-year licenses replace three short-term contracts awarded soon after the U.S.-led invasion in 2003.

The bidders include current operators Cairo-based Orascom Telecom Holdings, Kuwait's Mobile Telecommunications Co, and AsiaCell, said Siyamend Othman, head of the National Communications and Media Commission.

Leading Turkish mobile phone operator Turkcell and Korek Telecom, based in Irbil in Iraqi Kurdistan, will also bid, Othman told Reuters.

Consultants PricewaterhouseCoopers are overseeing the auction under a tendering process that took a year and a half and left five mainly Middle Eastern bidders in the running out of 11 firms originally shortlisted.

Depending on the offers, the bids will rise $50 million at each round with the minimum 18 percent revenue sharing set in the auction possibly rising, Allawi said. Revenue sharing is currently 13 percent.

Allawi said the winning bidders would be announced on August 20 in a two-day process.

Iraq was not considering more licenses beyond the existing three, he added.

At the end of the day we want three companies ... The winners could be newcomers or the same old ones or a combination of both, Allawi added.


Officials said the auction, which has been delayed due to Iraq's security problems, is a drive to get more revenues and improve services in a market that is viewed as underpenetrated.

They also said the major multi-million dollar auction system in a major government deal was to counter widespread criticism of a lack of accountability that has plagued Iraqi administrations since the U.S. led invasion.

Finance Minister Bayan Jabor told Reuters the winning firms have to offer 45 percent of their equity to the Iraqi public within a period of four years as part of a drive by the authorities to widen public ownership in lucrative investments.

In addition to at least 18 percent of revenues going to government coffers, the finance ministry will levy 15 percent tax on the profits of the mobile companies, he added.

There is a widespread belief that the original licenses were offered too cheaply to existing operators.